December 3, 2023

The Chicago area is a more competitive market than Milwaukee, said Nathan Ray, who leads the healthcare merger and acquisition division at the consultancy West Monroe. “There’s a little more leeway in Wisconsin because Advocate Aurora has in certain areas more dominance and cachet,” he said.

Charlotte, North Carolina, where Atrium is based, has a more concentrated hospital market than the Chicago and Milwaukee markets, according to the Health Care Cost Institute.

The relatively less competitive Charlotte market could explain why Atrium’s inpatient and outpatient prices were above state averages, economists said. Atrium charged commercial insurers 299% of what they would’ve charged Medicare for the same inpatient and outpatient services in 2020, when the state average was 266%.

Notably, Atrium’s prices stayed relatively consistent from 2018 to 2020. Atrium did not reply to requests for comment.

The American Hospital Association has criticized RAND’s sample size and data accuracy. While the RAND data controls for variation in labor costs and patient acuity, it does not account for the services offered at hospitals, investments in new equipment, community benefit or charity care policies, economists noted.

Economists and policy experts attribute the price increases to Advocate Aurora’s growing market share.

“I do know there is revenue from scale and bargaining power. I also know that running a hospital can be really lucrative, especially if you have a monopoly nearby,” said Barak Richman, a law and business administration professor at Duke University.

Uriel Pharmacy and Uriel Pharmacy Health and Welfare Plan, which filed the Wisconsin suit, allege that Advocate Aurora charges more than competitors for routine services like a colonoscopy with a biopsy, which costs $10,700 at Advocate Aurora compared with $4,700 at Froedtert & the Medical College of Wisconsin.

The complaint included a range of allegations, from forcing all-or-nothing contracts on employers and making employed physicians sign non-compete contracts to rejecting any reference-based pricing models.

In its motion to dismiss the lawsuit, Advocate Aurora said the “groundless claims are little more than a hodgepodge of stale media reports taken out of context and vague assertions based on unattributable sources—spaghetti thrown against the wall with the hope it somehow sticks.” Uriel has until Sept. 27 to respond, according to court filings.

Some experts see little connection between 2018’s Advocate-Aurora merger and increased prices. “I do not think Advocate Aurora’s increases were material or attributable to the merger,” industry consultant Jeff Goldsmith said.

Most health systems are going to charge commercial insurers at least twice as much as Medicare, West Monroe’s Ray said.

“The question is whether charging two-times or three-times Medicare is egregious. The answer is a very big, ‘it depends,'” he said. “Quality and service networks play a role in achieving high contracted rates as does competition scarcity. It’s not necessarily always because of consolidation.”

Whether the price increases are attributable to the merger, price hikes often trigger regulatory enforcement. The FTC has challenged three health system mergers—Lifespan and Care New England Health System; RWJBarnabas Health and St. Peter’s Healthcare System; and HCA Healthcare and Steward Health Care System—this year based primarily on the proposed transactions’ potential to increase prices and hike premiums and patient copays. The health systems nixed their proposed combinations.

Take it or leave it

Anticompetitive contract provisions with insurers such as all-or-nothing clauses are some of the biggest drivers of price increases, research shows.

Health systems realized that as they grew, they could demand that insurers include all their hospitals, physician networks and related businesses in their contracts or else they would take their business elsewhere, researchers said. Insurers then would have to include low-quality and high-priced hospitals they’d otherwise exclude from their networks.

The FTC has cited anticompetitive contract provisions as one of its areas of focus as it revamps its merger guidelines. In 2021, Sutter Health, a not-for-profit health system in Northern California, paid $575 million to settle allegations that it bullied payers to include all of its facilities in their networks. Sutter’s prices were much higher than all other California hospitals from 2003 to 2016, a 2018 study published in Health Affairs found.

“If there is independent evidence that Advocate Aurora has done all-or-nothing contracting, that would be a big indicator of the association between higher market share and higher prices,” said Glenn Melnick, a health economist and policy professor at the University of Southern California and the author of the 2018 study.

As the legal case progresses, state and federal officials will weigh the projected benefits of the Advocate Aurora-Atrium transaction with the potential anticompetitive impacts. Economists expect regulators to be more wary of these large hospital tie-ups, particularly as hospital spending accounts for about a third of the $4.1 trillion annual U.S. healthcare bill.

The FTC, under the leadership of FTC commissioner Lina Kahn, will have the opportunity to challenge more hospital mergers, Johns Hopkins’ Anderson said. “With the new FTC commissioner and this new (price transparency) data, they have the ability to challenge mergers that they didn’t have five years ago,” he said.

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